The Alberta Court of Appeal (ABCA) has released a decision reiterating the importance for insureds to act promptly if they wish to oppose a position taken by their insurer. In Lafferty v Co-operators,(1) the ABCA restated that the limitation period starts to run as soon as the insured knows or ought to know about the material facts that underlie the dispute with its insurer. A person's ignorance or misunderstanding of the law does not delay a limitation period.
Justin and Verna Lafferty owned a rental house that they had insured with Co-operators. The tenants used the house to run a marijuana-growing operation. In December 2010, Alberta Health Services issued an order deeming the house unsuitable for habitation and the Laffertys sought to recover the costs of rehabilitating the property from Co-operators.
In January 2011, the Laffertys met an adjuster, who advised that the costs they sought were not covered, according to a policy exclusion for loss or damage caused by illegal drug operations. In February 2011, Co-operators sent the Laffertys a letter formally denying their claim, relying on the drug-operations exclusion and another exclusion that applied to damage caused by vandalism.
The Laffertys did not file formal proceedings against Co-operators until 2017. In the years leading up to this, Justin attended law school, where he had learned about a provision in Alberta's Insurance Act that an innocent insured can use in order to avoid an exclusion for damage to property caused by another person's criminal or intentional act. Justin claimed that it was not until he learned about this legal principle, and several others, that he realised he had a claim against Co-operators for a bad faith handling of their claim.
Co-operators applied for a summary judgment of the Laffertys' claim. Among other arguments, it claimed that the limitation period had expired years earlier. A case management master agreed and dismissed the claim.
The Laffertys appealed, which eventually brought them before the ABCA. The ABCA explained that the issue was whether the court was wrong in its finding that the limitation period had expired. It was Co-operators' duty to prove that the Laffertys had discovered their claim more than two years before filing proceedings.
The ABCA found that Co-operators had met its duty. In its reasons, the ABCA cited a recent decision of the Supreme Court in Grant Thornton LLP v New Brunswick.(2) In this case, the Court ruled that a plaintiff would be deemed to have discovered their claim when they knew or ought to have known about the material facts on which their claim was based, in order for a plausible inference of liability to be drawn against the defendant.
In Lafferty, the couple were aware of the material facts that underlay their claim since they received the 2011 denial letter. At that time, the Laffertys knew Co-operators was denying their claim, and the grounds relied on by Co-operators. Although Justin later learned about legal principles that might entitle the Laffertys to relief, this did not delay or restart the limitation period. The two-year limitation period expired in 2013. Therefore, the courts dismissed the proceedings brought by the Laffertys in 2017.
Although this decision was made in Alberta, its application of Grant Thornton is relevant across Canada, as several other provinces have similar legislation on limitation periods and discoverability.Lafferty emphasises how important it is for insureds to consult coverage counsel promptly, as the insured's understanding of coverage law (or lack thereof) does not delay the limitation period. In Lafferty, the insurer agreed that the limitation period did not start to run until it issued its denial letter. However, under many policies, an insured's limitation period will be much shorter than two years and it also starts to run earlier, such as from the date of the underlying loss or damage.
For further information on this topic please contact Dylan Cox at Theall Group LLP by telephone (+1 416 304 0115) or email ([email protected]). The Theall Group LLP website can be accessed at www.theallgroup.com.
Endnotes
(2) Further information is available here.